Tag Archives: Bezos

Amazon And Tesla Reflect Deep Fraud Throughout The Financial System

Not much needs to be said about Tesla.  Elon Musk’s performance on the Company’s conference call speaks for itself.  He basically told the lemming analysts who have been the Company’s Wall Street carnival barkers to go have sex with themselves in response to questions looking for highly relevant details on Model 3 sales projections and Capex spending requirements.

I believe Musk is mentally unstable if not mildly insane.  He would do the world a favor if he gathered up what’s left of his wealth and disappeared into the sunset.  When Tesla collapses, I hope analysts like Morgan Stanley’s Andrew Jonas are taken to court by class-action hungry lawyers.  My response to something like that would be justified schadenfreude.

Amazon is similar story on a grander scale of accounting fraud and fantasy promotion. AMZN reported its Q1 numbers Thursday after the close. It “smashed” the consensus earnings estimate by a couple dollars, reporting a questionable $3.27 per share. I’m convinced that Jeff Bezos is nothing more than an ingenious scam-artist of savant proportions, as this is the second quarter in a row in which AMZN reported over $3/share when the Street was looking for mid-$1 per share earnings.

I bring this to your attention because there’s something highly suspicious about the way Bezos is managing the forecasts he gives to Street analysts. Every company under the sun in this country typically “guides” analysts to within a few pennies, nickels or dimes of the actual EPS that will be presented. For the Street to miss this badly on estimates for AMZN two quarters in a row tells me that Bezos is intentionally misleading the analyst community, which typically hounds a company up until the day before earnings are released. Food for thought there.

I don’t want to spend the time dissecting AMZN’s numbers this quarter in the way I have in
past issues. This is because the earnings manipulation formula remains constant. One interesting detail that Wall St. will ignore is the fact that AMZN’s cost of fulfillment as a percentage of product sales increased to 24.6% vs 19.7% in Q1 2017. It cost 25 cents per dollar of e-commerce revenue vs 20 cents per dollar of revenue a year ago to deliver an item from the warehouse shelf to the buyer’s door-step. Apparently all of the money Bezos spends on fulfillment centers ($2.3 billion in Q1) is not reducing the cost of delivery as promised.

The financial media flooded the airwaves with hype when Bezos announced that AMZN Prime had 100 million subscribers. However, the fact that the cost of fulfillment increased 500 basis points as percent of revenue generated tells us that AMZN is losing even more on an operating business on Prime memberships. I love ordering $10 items that are delivered in 2-days because I know that AMZN loses money on that transaction.

For “product sales” in aggregate (e-commerce + Whole Foods + the portfolio of crappy little service businesses) the operating margin increased to 1.16% of sales vs. 0.3% of sales in Q1 2017. HOWEVER, in acquiring Whole Foods, AMZN folded a 5% operating margin business into its revenue stream. It should have been expected that AMZN’s operating margin would increase this year. I’m surprised that folding in a 5% business did not boost AMZN’s operating margin even more. See the cost of fulfillment. In effect, Bezos used positive cash flow from WFM to subsidize the growing cost of Prime fulfillment. I also suspect that Bezos will be running WFM’s margins into the ground in an effort to boost revenues. The prices of WFM’s house-label brands were slashed immediately. AMZN’s stock is driven off of revenue growth and Bezos does not care if that means sacrificing profitability.

What’s mind-blowing is that big investors have let him get away with this business model for nearly two decades.  If the Fed and the Government had not printed trillions starting in 2008, Amazon’s grand experiment would have expired.  More than any company or business on earth, Amazon is emblematic of a fiat currency system that has gone off the rails combined with Government-enabled fraud of historic proportions.

So far, AMZN has not segmented the revenues from the WFM business in its footnotes. I doubt this will occur despite the fact that it would help stock analysts understand AMZN’s business model. Again, the conclusion to be made is that Bezos will push WFM’s operating margins toward zero, which is consistent with the e-commerce model. Hiding WFM’s numbers by folding them into “product sales” will enable Bezos to promote the idea that Whole Foods is value-added to AMZN’s “profitability.” In truth, I believe WFM was acquired for its cash – $4.4 billion at the time of the acquisition – and for the ability to hide the declining e-commerce margins for a year or two.

In terms of GAAP free cash flow, AMZN burned $4.2 billion in cash in Q1 compared to $3.6
billion in Q1 2017. Again, this metric helps to prove my point that Bezos sacrifices cash flow in order to generate sales growth. Not only does AMZN now have $24.2 billion in long term debt on its balance sheet, it has $22.2 billion in “other liabilities.” This account is predominantly long-term capital and finance lease obligations. This is a deceptive form of debt financing, as these leases behave exactly like debt in every respect except name. One of the reasons AMZN will present “Free Cash Flow” at the beginning of its earnings slide show every quarter is because it excludes the repayment of these leases from the Bezos FCF metric. However, I noticed that AMZN now sticks a half-page explanation in its SEC financial filings that explains why its FCF metric is not true GAAP free cash flow. A half-page!

In effect, AMZN’s true long term debt commitment is $46.4 billion. Funny thing about that, AMZN’s book value is $31.4 billion. One of the GAAP manipulations that AMZN used to boost its reported EPS is it folded most of the cost of acquiring WFM into “Goodwill.” Why? Because goodwill is no longer required to be amortized as an expense into the income statement. For presentation purposes, this serves to increase EPS because it removes a GAAP expense. Companies now instruct their accountants to push the limit on dumping acquisition costs into “goodwill.” But most of the $13 billion in goodwill on AMZN’s balance sheet was the cost of acquiring WFM, which required that AMZN raise $16 billion in debt.

Regardless of whether or not WFM is profitable for AMZN over the long term, AMZN will still have to repay the debt used to buy WFM. In other words, the amount thrown into “goodwill” is still an expense that has be paid for. For now, AMZN has funded that expense with debt. If the capital markets are not cooperative, AMZN will eventually have a problem refinancing this debt.

In summary, the genius of Bezos is that he’s figured out how to generate huge revenue growth while getting away with limited to no profitability. Yes, he can report GAAP net income now, but AMZN still bleeds billions of dollars every quarter. It’s no coincidence that Bezos’ scam mushroomed along with the trillions printed by the Fed tat was used to reflate the securities markets. For now, Bezos can get away with telling his fairytale and raising money in the stock and debt markets. But eventually this merry-go-round will stop working.

The tragic aspect to all of this is that a lot of trusting retail investors are going to get annihilated on the money they’ve placed with so-called “professional” money managers. I don’t know  how long it will take for the truth about Amazon to be widely understood, but Tesla will likely be a bankrupt, barring some unforeseeable miracle, within two years.  Perhaps worse is that the fact that people appointed to the Government agencies set up to prevent blatant wide-scale systemic financial fraud like this now look the other way.  It seems the “paychecks” they get from the likes of Musk and Bezos far exceed their Government pay-scale…

When you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed.  – Francisco D’Anconia “Money Speech” from “Atlas Shrugged”

Amazon.com’s Accounting Pornography

I wrote the following analysis on Amazon.com’s GAAP accounting manipulation for Seeking Alpha…

Amazon.com (AMZN) released its earnings on Thursday, February 1st after the market closed. The headline net income number was $3.85/share. This blew away Wall Street’s estimate of $1.85/share, which is a bit peculiar since the traditional “beat the Street” earnings game is accomplished by guiding Wall Street analysts to an earnings consensus that is slightly below the posted result.

The revenue growth rate was truly impressive. For Q4 2018 vs. 2017, revenues jumped 38.2%. For the full year, revenues grew 30.8%. However, without question AMZN’s free 2-day shipping associated with its Prime membership is the driving force behind sales growth. But at what cost? The table below shows AMZN’s revenue growth rate plus cost and operating margins from 2005 – 2007. The data is from AMZN’s 10-k filings.

Cost of fulfillment is the cost of de-stocking an item and getting it to the customer’s doorstep. The fourth line item above shows fulfillment costs over time. As you can see, the cost of fulfillment as a percentage of revenues has doubled since 2006. For every dollar of revenue, AMZN spends nearly 23 cents getting inventory delivered to end-users.

You can read the rest of this article here:   Amazon’s Deceptive Accounting Games

I also publish the Short Seller’s Journal, which is a weekly newsletter that provides insight on the latest economic data and provides short-sell ideas, including strategies for using options. You can learn more about this newsletter here:  Short Seller’s Journal information.

I’ve been subscribed for a number of months now and really appreciate your newsletter. It has been quite profitable. In fact I had bought the $15 August puts BZH, Bought at $0.70 – yesterday $1.82 – 160%. Other recommendations have also paid off well. Thanks again for your hard work. – subscriber feedback

The Accounting Ponzi Scheme Is Catching Up To Amazon

“‘Faith’ is defined as “belief without evidence.” AMZN is a stock investment that thrives on
investor faith. Investor greed transforms into irrational faith when the faith is rewarded with stock gains. This will ultimately burn out but it’s impossible to predict timing. The stock is trading at 178x TTM net income. This is an insane multiple for a company with a deteriorating business model that is under attack from all angles by large, well-capitalized competitors who specialize in Amazon’s business segments.

Having said that, I continue to believe that money can be made trading AMZN from the short side but it requires discipline and diligent capital management. Amazon is one of those stocks in which you need to maintain some short exposure because, when it finally goes, it will go quickly and you’ll be waiting for a big bounce to short that will never materialize” – excerpt from the latest Short Seller’s Journal

In last week’s issue of the Short Seller’s Journal, I did an in-depth analysis of Netflix’s (NFLX) accounting and demonstrated how NFLX manipulates GAAP accounting to manufacture fake net income. I advised subscribers to short NFLX on Monday at $188. This week I focus on the key areas of Amazon’s quarterly financials and show how Jeff Bezos transforms actual negative free cash flow into the Bezos $9.6 billion LTM “free cash flow.”

I also demonstrate the ways in which Amazon’s business model is beginning to break down – that it’s e-commerce model is under attack from all angles by well-capitalized, more profitable retailers like Walmart and its cloud computing business is being attacked aggressively by traditional software development and applications companies like MSFT, IBM, GOOG and ORCL.

On a year over year LTM basis, the amount of cash burned by AMZN has increased 89.2%, from negative $2.476 billion to negative $4.685 billion. – this seek’s Short Seller’s Journal shows why this statement is fact. Recently subscribers have cleaned up on Chipotle (CMG), Sears (SHLD), Beazer (BZH) and others. This week’s issue shows why AMZN will eventually be a home run short. You can learn more here: Short Seller’s Journal info.


If this is the case, the true reality beneath Bezo’s fraudulent accounting had to have been horrific:

Amazon’s quarterly profit misses estimates, shares tumble

From Reuters – LINK:  

Amazon.com Inc reported a lower-than-expected quarterly profit on Thursday as expenses rose and the company provided a disappointing fourth-quarter revenue forecast.

The growth of AMZN’s cloud business is rapidly slowing down.  This has been one of my key arguments about the insanity of the market cap attributed to AMZN’s cloud business. It’s tiny compared to AMZN’s overall revenues.  And competition in the cloud space is going to become ferocious as Microsoft, Google and Oracle begin to really flex their muscles.

The only question left for me is to determine which between AMZN and TSLA is biggest Ponzi scheme in history.  AMZN is maybe a $10 stock and TSLA is likely worth $2.